Three personal communications services licensees last week agreed to consent decrees with the U.S. Department of Justice concerning alleged collusion during the Federal Communications Commission’s 1996 D-, E- and F-block personal communications services auctions.
The consent decrees reached with Omnipoint Corp., Mercury PCS II L.L.C. and 21st Century Bidding Corp. consisted of the Justice Department filing lawsuits against the three companies and simultaneously settling them.
Omnipoint, which released its third-quarter earnings minutes after the department made public the consent decrees, said the agreement should have been a non-event. But a Justice Department press release proclaiming it was filing a lawsuit against the companies may have caused Omnipoint’s stock to tumble from $11 last Monday to $7.81 on Tuesday.
Sources close to the carriers said Justice’s announcement was overblown because it prominently proclaimed it was filing charges even though the cases technically already had been settled.
Furthermore, the agreements assess neither guilt nor penalties on the carriers. The consent decrees only require the carriers to promise not to use trailing numbers in their bids during future FCC auctions.
However, the FCC already has changed its bidding software to make the use of trailing numbers impossible.
The Justice Department claimed the government received less money during the auction process than it should have because certain carriers used coded bids to signal other bidders. The investigation into the reflexive bid signaling allegations centered around bidding activity in Indianapolis; Toledo, Ohio; and Lubbock, Texas.
Several auction participants coded the last three digits of their bids to correspond with the FCC number for the markets they were pursuing. Justice claims the defendants used the codes to highlight the licenses they wanted and invite firms competing for those licenses to stop bidding on them in exchange for an agreement not to bid against them in other markets.
“The defendants used their coded bids for the sole purpose of inviting their rivals not to compete,” said Joel Klein, assistant attorney general in charge of the Antitrust division. “The invitations were as clear and unmistakable as those traditionally made in person or by phone, and the resulting agreements were just as harmful.”
While Justice appeared to be claiming victory in its almost two-year investigation of the bid-rigging allegations, Omnipoint clearly disagreed.
John Grotland, a spokesman for Omnipoint, said the company used trailing numbers for internal bookkeeping purposes as well as for trying to keep competitors guessing at its strategy. The trailing numbers were never intended as a tactic to collude with competing bidders, said Grotland.
“This decree simply means that we will abide by the FCC’s rules, something we have always done in the past, which the FCC agrees we have done and which we would continue to do in any event in the future,” said Philip Chasmar, executive vice president of 21st Century. “21st Century did nothing wrong. The FCC did its own investigation and came to that conclusion also, but it made no business sense for us to keep bearing the expense of litigating against DOJ when there were no financial consequences at stake.”
The investigation began in March 1997 when High Plains Wireless L.P. filed with the Wireless Telecommunications Bureau a petition to deny 32 of Mercury’s licenses.
The commission originally concluded Mercury’s bidding technique could have violated anti-collusion rules and fined the company. The FCC later overturned that ruling, saying its rules did not make clear that Mercury’s activities would violate the anti-collusion rule.
The FCC referred the bid-rigging allegations to Justice.
Commenting on its consent decree with the Justice Department, William Mounger, chairman of Mercury, said, “While we would have preferred to resolve this matter without the consent decree, we could not justify the huge legal expense that would have been associated with a court fight to vindicate our legal position.
“As matters stand, our licenses have been awarded, and the FCC already has changed its auction procedures to address this issue, so a legal victory would have been of no practical utility to Mercury.”
